Back to the Future

Friday April 27, 2007 - 6:30PM EDT

I remember before the Wii came out all the so called financial analysts were predicting it would be a niche player firmly planted at #3 in the console race. I found it baffling that they were just placing them in the same position they were in the previous console generation without any real analysis. These guys may have known finances but they didn't know a damn thing about video games. All these clowns are eating crow now.  I personally liked Nintendo's strategy and thought they had a chance. The funny part is that even with Sony's missteps in the begining and Microsoft's poor sales in Japan (the second largest video game market after North America) analyst were still predicting Sony domination. With Kutagari stepping down the other day that is a sign of just how bad Sony messed up this launch. I do however still side with many analysts that the PS3 superior technology will keep it around but the idea that it will be the dominate console is erroding every day. The single most important factor in console success is installed user base. Because if you don't have the machine in people's hand publishers aren't going to spend much time on your machine.  That is the problem that plagued Nintendo's last two consoles. However they were able to survive those cycles without much damage due to their own first party publishing strength. They didn't necessarily need outside publishers to make games for the system for it to be profitable. Neither Microsoft nor Sony have the first-party game making strength Nintendo has. Which was built over decades of making games.

The brilliance of Nintendo's strategy is that it wasn't a gamble per say. The DS was their small experiment and once that became successful they knew Wii would have a hell of a chance of being huge. The DS in fact has become the dominate video game device on the market. They expect to sell 22 million on those things this year. I have to admit I think I play my DS more than Wii. For Nintendo to not be dominate for two cycles after dominating with the 8-bit system and possibly coming back to the top is impressive. They have got to be one of the most innovative and competitive companies on the planet. 

It still remains to be seen who will come out on top. It will take another year or two to determine who has the largest installed user-base. 360 is top now but Wii is catching up after being a year behind. I just wonder where PS3 is going to end up. Because in video games as so many have already said it is about the games when you get down to it.  But as I said before without user-base or strong first party showings it is hard to get the games.

The other curious thing about the Wii is that Nintendo makes a profit on selling the actual system. Something that is almost unheard of in the console industry. Consoles are usually sold at a loss and companies make up for it in software sales or eventually start making a profit when production costs come down. I wonder how this will affect the console cycle for Nintendo or the their next console.  Will the extra cash allow them to pour more money into research and development for their next console and allow it to be more advanced and not be expensive?  It is an interesting question of what Nintendo will do with the extra resources from its Wii and DS successes.